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Petitioner Landlord Is Not Required to Offer New Preferential Rent Agreement

Posted by nyhawk on June 06, 2001 at 22:48:10:


782 PPS CORP v. RODRIGUEZ

New York Law Journal
June 6, 2001

CIVIL COURT

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Housing Part i

Judge Heymann

In December, 2000 petitioner commenced this nonpayment proceeding seeking three months rent at $639.76 per month for a total of $1919.28 pursuant to a written lease effective April 1, 2000. The subject premises is rent stabilized and the respondent had previously been given a preferential rent during the term of her original lease and, thereafter, during the term of her first renewal lease, which expired on March 31, 2000.

Respondent answered the petition (general denial) on January 19, 2001 and the matter was calendered for February 2, 2001. On February 2, 2001, respondent, pro se, entered into a stipulation of settlement with petitioner's attorney, consenting to a final judgment in the amount of $2202.12 as all arrears due through February, 2001. The warrant was to issue forthwith, execution stayed through February 28, 2001. The stipulation further stated that respondent was awaiting Jiggetts modification.

Respondent, now represented by Bronx Legal Services, moves this Court to vacate the stipulation and judgment and to dismiss the petition on the grounds that the amount in the judgment and that sought in the petition exceed the legal rent permitted under the Rent Stabilization Code.

It is the respondent's position that once a preferential rent is agreed to, the petitioner is bound to the amount in the preferential lease and all subsequent rent increases must be based upon the preferential amount rather than the amount that could have been charged.

On August 27, 1998, respondent signed a lease renewal form for a new two year lease retroactive to April 1, 1998, expiring on March 31, 2000. The legal rent increased 4 percent from $591.26 to $614.91. [Resp. Ex. C] In conjunction therewith, respondent executed an agreement which provided in relevant part " . . . that the legal rent is $614.91 and the above tenant will pay preferential rent, $583.44 as agreed herein between the above parties, until the next renewal or vacancy lease expires. In the event of dispossess or any legal proceedings for none-payment [sic] or breach of the lease, the action will be taken based on the legal rent, and not on the preferential rent." [Resp. Ex. D][1]

As of April 1, 2000 a new lease with a legal rent of $639.76 commenced. Respondent maintains that she was never offered a new preferential rent agreement and that Jiggetts has continued to pay $583.44 to date. Neither of these contentions are disputed by the petitioner.[2]

Petitioner is now seeking to collect arrears based on the respondent's failure to pay the "legal rent". He relies on the last sentence of the agreement, set forth above, which states that " . . . the action will be taken based on the legal rent, and not the preferential rent."

In paragraph 21 of its affirmation in opposition, petitioner "submit[s] to the Court that this [preferential] agreement is valid and binding on Respondent as the default provision was a condition to receiving a reduced rent. If Respondent were allowed to subvert this agreement, it would be in contravention of accepted public policy to rent apartments below the legal regulated rent, it would cause landlords to refuse to give apartments for lower rents if the preferential rent agreements are not fully enforced. The Court must not enforce only one aspect of the agreement that favors the tenant, but it must enforce the entire agreement, especially since Respondent received the full benefit of the agreement while she was in compliance."

While the Court agrees with petitioner's assertion that landlords would refuse to rent apartments for lower rents if preferential rent agreements were not fully enforced, the petitioner fails to specify how the respondent defaulted during the period the above agreement was in effect. The only rent that respondent was required to pay during the term of the agreement (April 1, 1998 - March 31, 2000) was the preferential rent set forth therein which, in fact, was paid in full.

Since the agreement proffered by the petitioner was only valid until the expiration of the lease renewal for which it applied, in this instance March 31, 2000, it is no longer applicable to this case with regard to the current rent. Inasmuch as Jiggetts has continued to issue monthly payments of $583.44, even after the preferential rent agreement expired, petitioner could only sue for the difference between the legal rent of $639.76 and $583.44 which amounts to $56.32 per month.

At the time this motion was submitted to the Court on May 10, 2001, there was no case law that specifically resolved the issue of whether a landlord was required to continue offering preferential rent agreements, in perpetuity, with each successive renewal lease, during the lifetime of an existing tenancy. However, based upon a reading of the limited material available on this subject up to that point, it was not unreasonable for the respondent to draw the conclusion that such a requirement existed.

As stated in Residential Landlord-Tenant Law In New York 4:114 [Rent concession binds landlord to lower rent]:

The courts have held that concessions made to accommodate a particular tenant will ordinarily become the legal rent for that tenant. A lease for less than the permissible increase binds the landlord to the amount stated in the lease, and subsequent rent increases for the tenant in occupancy will be based on the amount actually charged in the previous lease not the amount the landlord could have charged. (Citing: Matter of North Carolina Leasing Corp. v. DHCR, 156 AD2d 452, 548 NYS2d 565(2nd Dept. 1989); Century Operating Co. v. Popolizio, 90 AD2d 731, 455 NYS2d 789 (1st Dept. 1982) revd on other grounds, 60 NY2d 483, 470 NYS2d 346) (Emphasis added).

While neither of the two cases cited above directly address the issue of preferential rents, the Appellate Division in Century Operating Co. v. Popolizio, supra, at 455 NYS2d 791, held that " . . . except for authorized rent increases, renewal leases be offered on the same terms and conditions as the expiring lease." In that case, the initial lease contained a rider which provided for a concession whereby the tenant was not required to pay rent for the first two months of the lease term due to the fact that building construction might not be completed by the beginning of the specified lease term. The Court upheld the determination of the NYC Conciliation and Appeals Board [CAB] that the landlord was required to include this two month concession in each renewal lease, notwithstanding the landlord's argument that it was intent of the parties that said concession be a "one time only" concession. The Court of Appeals, finding that the CAB's interpretation of the lease rider was arbitrary and capricious, reversed. The Court held that "[t]he rider must be read 'in the light of the circumstances existing at its making'" which in that particular case "would have no meaning in the context of renewal leases." "[O]n the question of the meaning to be given to a contractual term or condition once incorporated in a renewal lease, the parties' intent is, as always, a touchstone of contract construction." The concession under consideration, fixed as it was to the giving of possession and assumption of occupancy in the uncertainty of building completion, cannot be construed to carry forward to renewal leases." Century Operating Co. v. Popolizio, supra, at 470 NYS2d 349.

In the case at bar, in contrast with Century Operating Co. v. Popolizio, supra, there was no reference to any specific condition or event that would evidence an intent by the parties that the reduced rent would not be offered on an ongoing basis. The only limitation was that the reduced rent would continue until the expiration of the renewal lease. Without more, there would be no reason for respondent to anticipate that it would be discontinued.

Further, the newly adopted language of Rent Stabilization Code [RSC] 2521.2 Preferential Rents [formerly: Legal regulated rents for housing accommodations], effective December 20,2000, which, for the first time incorporates the words "preferential rent", does not state categorically that such rents are limited only for specific terms and need not be renewed.. Section 2521.2 of the RSC reads as follows:

Where the legal regulated rent is established and documented in a manner prescribed by the DHCR, and a rent lower than such rent is charged and paid by the tenant, such lower rent shall be a preferential rent, which shall be subject to all adjustments provided by law and this Code. Upon vacancy of the tenant who pays a preferential rent, the legal regulated rent shall be the legal regulated rent previously established by record within four years prior thereto, plus all intervening guidelines increases, plus such other rent increases as are authorized by law and this Code. (Emphasis added)

The phrase, "upon vacancy of the tenant who pays a preferential rent" ambiguously gives the impression that until a tenant who pays a preferential rent vacates, such preferential rent continues to exist for that tenant.

Following this line of reasoning, the petitioner in this proceeding would have been required to offer the respondent a new preferential rent agreement in conformity with the authorized rent increases incorporated in the lease renewal.

However, on May 22, 2001, in a 3-2 decision, the Appellate Division, First Department, in Application of Missionary Sisters of the Sacred Heart, Ill. v. DHCR and Croseri, NYLJ, 5/29 /01, p.22, col.1, reached a different conclusion. (See dissent by Rubin, J.)

In Missionary Sisters, supra, as in this case, the petitioner entered into a two year lease with respondent Croseri and executed a preferential rent rider for a reduced rent. Thereafter, the parties entered into a lease renewal for one year and again executed a preferential rent rider identical to the first rider. Prior to the expiration of the first renewal lease, petitioner tendered a second renewal lease at the legal regulated rent without the rent concession. In that case, unlike the instant matter, the respondent refused to execute the renewal lease and commenced an administrative proceeding with the DHCR. The DHCR Rent Administrator determined that "renewal leases are based on preferential rent until the tenant moves out." Petitioner then filed a PAR which was denied. A subsequent Article 78 proceeding in Supreme Court yielded the same result.

In reversing the Supreme Court's determination, the Appellate Division rejected the DHCR's reading and application of former section 2521.2(b) of the RSC (now revised 2521.2, supra).

In our view, as opposed to the interpretation set forth by the DHCR, the above-cited provision does not dictate the exclusive point at which the legal regulated rent can be charged if a concession has been granted, and there is nothing in its terms which indicates such a restriction was intended. Rather, Section 2521.(b) provides guidance in those situations where no written agreement control and /or where the rent concession is open ended or where the tenant, and possibly the landlord also, are unaware the rent being charged is not the maximum allowable. It was not intended, however, to obviate the terms of a lease agreement where both the landlord and the tenant are aware that the rent charged could, legally, be higher, but agree, for a limited period, under a specific set of circumstances, to allow the tenant to pay less.

To hold, as did the DHCR, that any and all agreed upon limited concessions are, in fact, not limited at all but survive to the termination of the tenancy will serve no other purpose but to foreclose any informed landlord from providing such a limited preference, whether such preference inures solely to the benefit of the tenant, or to both the tenant and landlord.

In reviewing the leases and preferential rent riders, the Court found that

. . . the agreements, by their own terms, set forth the legally allowable rent that could have been charged under the Rent Stabilization Code; the concession, or preferential rent that would be charged; the specific term for which the discounted rent would apply; and the clearly defined reason why the lower rent was offered.[emphasis added] There is nothing in either the lease or the renewal that might in any way indicate the concession or preference was indefinite, rather it was specifically [emphasis in original] tied to economic conditions prevailing at the time the lease was executed and was to apply for that particular lease term. We perceive of no reading of the leases, or ambiguity in their terms, which might lead the tenant, or the DHCR, to conclude that the preference was to survive recovery after the economically depressed market recovered.

Relying on the Court of Appeals' decision in Century Operating Co. v. Popolizio, supra, the Appellate Division found that in both matters, the tenant " was expressly informed of the basis for the rent concession" and that the rent concession in its case was "limited to the particular lease term for the specific reason stated."

As previously noted, the preferential rent agreement in this case can be distinguished from those in Missionary Sisters and Century, supra, in that respondent was not expressly informed of the basis for the rent concession and that no specific reason, condition or event that would clearly trigger its termination was enunciated therein, other than the fact that it would expire at the end of the term of the renewal lease itself.

Notwithstanding the reasoning by Justice Rubin in his dissent, that the DHCR's interpretation of statutes and regulations subject to its administration is entitled to great deference, and that the landlord's intent not "to incorporate the rider in future lease agreements is not dispositive in view of the requirement to provide a renewal lease 'on the same terms and conditions as the expired lease'" (citing RSC 2522.5[g] and Century Operating Co. v. Popolizio, supra), in light of the Appellate Division's ruling, this Court is constrained to find that the petitioner was not required to offer a new preferential rent agreement when the previous one expired on March 31, 2001.

Since the petitioner can sue the respondent for the legal regulated rent of $639.76, the respondent's motion to dismiss the petition, on the grounds that the rent sought exceeded the legal limits, is denied. However, the respondent should have been given a $0 balance on April 1, 2000 because the preferential rent due each month preceding that date had been paid in full. The petitioner can only sue for the difference between the legal rent and the preferential rent that Jiggetts has continued to pay to date, and which the petitioner has accepted, from April 1, 2000 to the present. Therefore, the Court will grant that branch of the respondent's motion seeking vacatur of the judgment, as the amount entered therein ($2202.12) is incorrect. The Court finds that the respondent currently owes petitioner arrears in the amount of $788; calculated as follows: $56.32 ( the difference between the legal rent and the preferential rent) x 14 months (4/00 - 5/01) = $788.48.

Accordingly, the respondent's motion is granted only to the limited extent of vacating the prior judgment and warrant and denied in all other respects. The petitioner is award a new final possessory judgment in the amount of $788. 48. Issuance of the warrant is stayed through June 30, 2001. This constitutes the decision and order of the Court.

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FootNotes:
[1]
Respondent had signed an identical agreement with respect to her original lease providing for a preferential rent of $550. [Resp. Memo Ex. C]
[2]
A review of respondent's rent history provided by petitioner [Pet. Ex. B] shows that the base rent listed each month was not the preferential rent, for which there is no reference to anywhere in said rent history. Notwithstanding full payment of the preferential rent every month, this resulted in a continuous shortfall in respondent's balance which was carried over and added on to each successive month. Moreover, from April 1, 1999 through March 31, 2000, petitioner incorrectly charged the respondent $615.15 per month which exceeded the legal rent of $614.91. Had the preferential rent been listed as the base rent, the respondent would have had a $0 balance as of April 1, 2000 when the current lease, upon which the petitioner is suing, became effective.

Date Received: June 05, 2001

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